ItBit Reveals Bankchain Project Won't Use Bitcoin

ItBit has revealed new details about its formerly top-secret Bankchain project, a private consensus-based ledger system aimed at appealing to enterprise financial institutions.

With the formal unveiling, the New York-based bitcoin exchange has joined the number of blockchain firms seeking to compete for the attention of banks that want to utilize the efficiencies of distributed databases without using bitcoin or its blockchain.

In a new interview, Steve Wager, head of global operations for itBit, spoke at length about the project, rumors of which first began surfacing in late July. Speculation was followed by confirmation from the exchange it would host a private, one-day summit in New York to promote its release.

Called the Bankchain Discovery Summit, Wager said the event drew 100 participants from 25 leading financial institutions, including custodians, broker-dealers and those providing infrastructure support for the industry.

Wager said that itBit built Bankchain using insight from its team's history in the finance industry and input from Wall Street firms, who favor the idea of using a distributed ledger to tokenize existing assets.

Wager told CoinDesk:

"It is a proprietary itBit protocol, not blockchain based, but is derived off of blockchain. We will also not be using bitcoin as the native token it will be an itBit proprietary token."

As for market fit, Wager said Bankchain will seek to appeal to institutions seeking to leverage the blockchain for clearing, settlement and custody, though he was also scant in providing details as to any partnerships itBit has secured.

"We've actually been focused on the custodian and broker-dealer community," he continued. "We've had over 200 unique meetings in New York and California, where they have expressed interest in clearing and custody."

One of the older bitcoin exchanges in the ecosystem, itBit was also one of the first to raise a significant amount of venture capital, garnering $3.25m in late 2013 from investors including Canaan Partners, Liberty City Ventures and RRE Ventures then as a Singapore-based firm.

ItBit most recently finalized a $25m Series A in May, at which time it relocated its headquarters to New York.

Inspired by the blockchain

Today, Bankchain remains in its infancy, with the platform being operated and used solely by itBit. Wager noted that Bankchain is being used for itBit's cash markets and that nodes on the Bankchain network are currently "view-only", meaning it is not yet accepting outside participants, as in the Ripple network.

Wager sought to underscore that Bankchain is "inspired by" bitcoin's blockchain, but that it is a consensus-based alternative system. Upon release, he said itBit has no plans to open source the code or distribute it outside of participants in the network.

Moving forward, Wager said Bankchain's underlying technology is currently being subject to peer academic review. Further, he asserted that itBit has received a "soft commitment" from as many as 15 firms that are considering implementing the technology.

Still, he cautioned that itBit's potential clients are still learning about the technology, emphasizing the need for a potentially lengthy education phase. In addition, he said, itBit is still determining how it would go about integrating with enterprise clients.

Wager expects any expansion of the project to be delayed until the end of 2015 or early 2016.

"Eventually down the road, we're also looking at running our exchange through it, so we'll be able to use the consensus mechanism and then we'll be able to issue tokens," he explained.

Shifting strategies

While typically thought of as a bitcoin exchange, Wager said that itBit sees itself as capable of being competitive across multiple verticals.

"We have our cash bitcoin exchange, we've rolled out an over-the-counter (OTC) marketplace and within our global community we will be offering a lending product for bitcoin," Wager said.

As itBit has the ability to act as a custodian for both fiat and bitcoin-denominated funds, Wager said he foresees this being broadly useful, allowing it to serve as a repository for assets held in retirement or other investment accounts.

Bankchain, however, aims to underlie all of itBit's services.

"People who interact with Bankchain will have a modular selection of capabilities that they'll be able to chose from whether its trading, clearing and settlement or custody," he continued. "We believe that the tying in of different business models will increase our competitiveness in the bitcoin space."

Wager further characterized Bankchain as being capable of satisfying the growing demand for settlement solutions on Wall Street, adding:

"Itbit is the only one who can allow true settlement finality on a tokenized basis for both assets as well as cash."

Trust advantage

When asked how itBit will handle market competition in New York given its newcomer status to the state, Wager was quick to note that the exchange is the only entity currently operating with a New York banking charter, though rival Gemini has applied.

As such, he argues that itBit will be able to use this licensure to improve its Bankchain service, which in addition to tokenizing assets, will also allow these digital assets to be converted into US dollars.

"Moving assets across the chain is relatively straightforward," Wager continued, "But being able to settle to US dollars on the back of that is a different situation."

Wager said that the banking charter allows itBit to "tie into" the existing financial structure in the US, and potentially other national financial services, should it seek to expand abroad. He added:

"We can become a member of the national settlement service, and that's important because of the fact that most of the firms in blockchain tech have not been able to solve the problem in regards to delivery of a tokenized transaction."

Wager was also quick to note that itBit is likely to benefit from the ongoing issues stemming from New York's enforcement of the BitLicense, its regulatory scheme for the industry.

"We can continue to service clients in New York state as well as the US," he said, noting that other exchanges, including market leaders such as Bitfinex and Kraken, have chosen to avoid the market rather than bear the cost of licensing.

Still, while beneficial for itBit's prospects, Wager was sympathetic to the hurdle the regulation is likely to put in front of those seeking to compete in the ecosystem.

He concluded:

"We of course feel for the other exchanges out there, but we do think regulation is a natural evolution for bitcoin as a business that can bring legitimacy to the system."